Hurricane futures spread risk, but aren’t inspiring insurers to embrace S.C.

Thursday, 05 April 2007

Page 3 of 3 ‘Very active’ hurricane season predicted On April 3, a closely watched Colorado State University forecast predicted that the 2007 Atlantic hurricane season will be “very active,” with nine hurricanes and a good chance that at least one major hurricane will hit the U.S. Coast. Forecaster William Gray said he expects a total of 17 named storms this year, five of them major hurricanes with sustained winds of 111 mph or greater. The probability of a major hurricane making landfall on the U.S. coast this year is 74%, compared with the average of 52% over the past century, he said. Yet even with Gray’s expert analysis, forecasters can be wrong. In 2006, both Gray and the National Hurricane Center, which issues its hurricane season forecast in late May, predicted far more active seasons than actually occurred. And that’s where the volatility of the hurricane futures market lies. In a written release — Gray famously avoids interviewers — the professor’s research team at Colorado State said an unexpected late El Niño, a warming in the Pacific Ocean, contributed to the calmer season last year. El Niño has far-reaching effects that include changing wind patterns in the eastern Atlantic, which can disrupt the formation of hurricanes there. Despite the forecast, major players in the South Carolina insurance market are standing pat. For now. Dick Luedke, a spokesman for State Farm Insurance, said at this time the company has no interest in purchasing hurricane futures. “We already spread out our risks by other means,” he said. “One big one is by buying reinsurance, which we do both internally and externally,” he said. “For instance, our auto division provided reinsurance for State Farm Fire and Casualty, which had considerable claims related to Hurricane Katrina. “Basically, that money was reimbursed to it by our automotive division,” Luedke said. “Over the long run, that allows us to even out our loses and, in time, even make a little money.” Bottom line, Luedke said hurricane futures are still too new to provide the comfort level to insurers that reinsurance does. Renita Q. Ward, spokeswoman for Allstate Insurance’s Southeast Region, said her company is always interested in including new investors to CAT risks or broadening the pool of CAT risk partners. “We are closely monitoring the developments of the hurricane futures contracts but have no immediate plans to trade risk on the exchange,” she said. All of which means, for now at least, insurers are standing by their resistance to write more policies along the South Carolina coast. Ward said in regard to South Carolina’s eight coastal counties, Allstate is writing new homeowner’s policies only when placing wind and hail exclusions in the South Carolina Wind Hail Underwriting Association boundaries and on replacement homes only. The eight coastal counties are Beaufort, Berkeley, Charleston, Colleton, Dorchester, Georgetown, Horry and Jasper. Luedke said State Farm is not writing any new policies along the South Carolina coast, and that’s not likely to change anytime soon. “With each policy we write, we look at the risk and look at whether we can obtain the proper premium for the risk we have,” he said. “And of course, we’re not going to make a new promise that in any way compromises the commitments we’ve already made.” << Start < Prev 1 2 3 Next > End >>